Bank economists see stronger economic growth in 2014

This year will be a breakout year for the U.S. economy as private-sector demand accelerates and fiscal drag eases, according to the Economic Advisory Committee of the American Bankers Association (ABA).

The committee, which includes 13 chief economists from among the largest banks in North America, predicts inflation-adjusted GDP growth for 2014 will be 3.0 percent, compared to a 2.3 percent annual average since the Great Recession ended in mid-2009 and the post-recession high of 2.8 percent in 2010.

“This will be the strongest economic growth since the expansion began in 2009, and the committee’s strongest forecast since 2005,” Christopher Low, chairman of the group and chief economist of First Horizon National Corp’s FTN Financial, said in a news release. “We expect faster growth in business investment and stronger job creation as the economy improves.”

The bank economists believe the nation’s housing market will continue to grow in 2014 as wages increase and the unemployment rate continues to fall.  The group foresees the housing sector gaining strength as home sales recover from depressed levels.  The committee forecasts that home prices nationwide will rise solidly and that residential investment will increase 12.3 percent in 2014.  The stronger housing sector will in turn, boost consumer spending.

“When families get into new homes, they spend more on appliances, furniture, electronics and building materials,” Low said.           

Consumers are also finding themselves on stronger financial footing this year and have regained confidence, according to the ABA’s Economic Advisory Committee.  The group believes consumer spending will support economic growth over the year ahead.  Automobile sales are also expected to stay strong.

“Some consumers remain cautious due to lingering high unemployment and slow wage growth,” Low said in the news release. “Many have not benefited from the resurgent stock market and personal income growth, and are carefully watching what they spend.  But, tax rates will rise much less in 2014, and household balance sheets are healthier than they have been in years. The consumer is the key; if people loosen up their wallets and pocketbooks, economic growth will be even stronger.”

As the recovery improves, the committee believes underlying drivers of economic growth will broaden beyond housing and consumption.  Business spending and exports should also be stronger in 2014. 

The Economic Advisory Committee believes national fiscal policy will exert less drag on consumers and businesses over the course of next year.  The impending passage of a two-year budget agreement without big tax increases or spending cuts is a big change from 2013’s fiscal austerity, reducing economic uncertainty, according to the release. The group forecasts a federal deficit of $560 billion in fiscal year 2014 (down from $680 billion in fiscal year 2013) and below $500 billion in fiscal year 2015. The committee says that higher tax receipts from a stronger economy will account for most of the improvement.

“This year’s bipartisan budget deal will be extremely beneficial to the economy,” Low said in the release.  “For the first time since 2009, businesses and consumers can plan with much less worry about disruptive policy battles.”

After slowing in December, job growth will accelerate from nearly 180,000 jobs per month last year to more than 200,000 jobs monthly in 2014, according to the bank economists’ forecast.

“Faster job growth will pull the unemployment rate down to 6.4 percent by the fourth quarter,” Low said. “The Federal Reserve will continue to monitor the job market and taper asset purchases accordingly. In the meantime, watch for investors to shift focus from the Federal Reserve’s asset purchases to its guidance on rate policy.”

The committee expects the Federal Reserve to maintain a very accommodative policy stance, keeping the federal funds rate extremely low.

The bank economists forecast that consumer credit growth will pick up this year, and that delinquencies will remain at low levels both this year and next.  In 2014 and 2015, loans to individuals are expected to rise about 7 percent and loans to businesses will grow 8 percent.

The members of the 2014 ABA Economic Advisory Committee are:

· Committee Chairman Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York;

· Scott A. Anderson, SVP and chief economist, Bank of the West, San Francisco, Calif.;

· Scott J. Brown, SVP and chief economist, Raymond James & Associates, Inc., St. Petersburg, Fla.;

· Robert A. Dye, SVP and chief economist, Comerica Bank, Dallas;

· Ethan S. Harris, co-head of global economics research, Bank of America Merrill Lynch, New York;

· Stuart G. Hoffman, chief economist, PNC Financial Services Group, Pittsburgh;

· Peter Hooper, managing director and chief economist, Deutsche Bank Securities Inc., New York;

· Nathaniel Karp, EVP and chief economist, BBVA Compass, Houston;

· Bruce C. Kasman, chief economist, JP Morgan Chase & Company, New York;

· Gregory L. Miller, SVP and chief economist, SunTrust Banks, Inc., Atlanta;

· George Mokrzan, SVP and director of economics, Huntington National Bank, Columbus, Ohio;

· Richard F. Moody, SVP and chief economist, Regions Financial Corporation, Birmingham, Ala.; and

· Carl R. Tannenbaum, SVP and chief economist, Northern Trust Corporation, Chicago

The American Bankers Association says it is the voice for the nation’s $14 trillion banking industry and its two million employees.